Budget settings must support growth: panel

Business groups and unions have urged the federal government to nurture economic growth and jobs with appropriate budget settings, coinciding with a new report showing a jump in business confidence.

Prime Minister Julia Gillard's national panel for economic reform also noted the importance of maintaining sustainable public finances over the medium term at its inaugural meeting, held behind closed doors in Canberra on Tuesday.

In December the government ditched its promise to return a budget surplus this financial year, saying a return to the black was now unlikely.

Treasury briefed the panel - which includes the Business Council of Australia, the ACTU and the Australian Chamber of Commerce and Industry - on the current economic environment.

"Productivity growth will need to improve in order to sustain growth in Australia's living standards," a communique from the panel said.

The meeting coincided with a new report that showed business confidence jumping sharply on the back of an improved global outlook after the US avoided the so-called fiscal cliff for now, as well as a strengthening Chinese economy.

National Australia Bank said in its December business survey that confidence also benefited from that month's interest rate cut by the Reserve Bank of Australia (RBA).

Its business confidence index surged 12 points in December to plus three index points, after slumping in November to its lowest level since April 2009.

However, business trading conditions remained poor, with only a small rise to minus four from minus six previously.

NAB says the data suggests the overall economy will slow to below trend, usually seen at 3.25 per cent, during 2013.

It forecasts growth of two per cent in 2013 and a recovery to 3.3 per cent in 2014.

It expects the RBA to cut the cash rate by 25 basis points to a record low of 2.75 per cent next month, with a further two cuts possibly in May and August.

However, Deloitte Access Economics economist Chris Richardson believes a high Australian dollar is hampering the RBA's efforts to spur non-resource sectors into action to fill the void left by mining investment peaking this year.

"The Australian dollar is still giving manufacturing a Chinese burn, and the news also remains modest in both tourism and international education," Mr Richardson said in his latest business outlook.

But he expects lower rates will help housing construction "strut its stuff" in 2013, while the recovery in retail, albeit from a fairly poor base, might get a second wind from the second half of the year.

Separately, a survey conducted for Austrade and the Australian Chambers of Commerce in China found 69 per cent of Australian businesses operating in China were optimistic about the Asian giant's economic outlook, with many looking to expand their presence in the country.

Trade Minister Craig Emerson, who is assisting the prime minister on Labor's Asian Century policy, said such optimism was well founded.

"China's shift to a consumer-driven growth model is creating huge demand for a range of high-value Australian goods and services, as well as our traditional commodity exports," Mr Emerson said in a statement.

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